DVT Integration Guidelines for the Curated Module Node Operators

Description

In light of the adoption of Distributed Validator Technology (DVT) across Ethereum, and its strong performance across the Lido protocol both in the Simple DVT and Community Staking Modules, as well as in other staking protocols, it is proposed that Node Operators in the Curated Set may begin to adopt DVT in an intra-operator (i.e., self-run clusters) format.

If this proposal is supported by the DAO, the following changes will take effect:

1. DVT adoption in the Curated Module. Node Operators in the Curated Set may opt-in to intra-operator DVT setups (utilizing either Obol or SSV);
2. Validator migration mechanics. Each Node Operator in the Curated Set can utilize key splitting for up to the lesser of 1,000 or 20% of existing active validator keys, after following a testnet process via the Lido Hoodi instance;
3. Key Generation Requirements. Node Operators in the Curated Set may add any number of additional DVT-based keys to their depositable keys in the Curated Module, provided that these keys are generated via a verifiable Distributed Key Generation (DKG) process, and the process for which key shards are created, stored, and used has been vetted by NOM workstream contributors;
4. Incentive allocation updates.
   1. For validators using DVT in the Curated Module, Node Operators would receive 20% of DVT provider incentives (via Obol or SSV), with the remaining 80% directed to the Mellow Decentralized Validator Vault.
   2. Separately, in light of the updated incentive structure for the Curated Module, it is proposed to increase DVT provider incentives for participants in the Community Staking Module with the Identified Community Staker Node Operator type (note: this is dependent on the launch of CSMv2) from 20% to 25%, with the remaining 75% going to the Mellow Decentralized Validator Vault.
5. Operational safeguards. Operators must follow risk mitigation steps including testnet validation, proper key handling, and coordination with Lido contributors. Limits are set to ensure DAO-level risk remains minimal in case of slashing.
6. Transparency and reporting. Operator participation and adoption of DVT in the Curated Module will be publicly tracked via the Lido Research Forum and quarterly VaNOM reports.

This text contains an abridged version with the key points of the proposal. Lido DAO voters are encouraged to read the full proposal on the Research Forum or its replicated IPFS version before voting.

DVT Performance Overview

Today, over 140,000 validators active on Ethereum mainnet are utilizing DVT, with 125,000+ utilizing SSV, and another 16,000+ utilizing Obol’s technology. Both providers are growing quickly, while at the same time demonstrating strong performance and many of the inherent benefits that DVT provides (e.g. infrastructure resilience and decentralization).

The Simple DVT Module demonstrates the highest operational metrics within the Lido Staking Router Module, with:

• 97.5% all-time RAVER (Rated Validator Effectiveness Rating) vs. 96.72% overall network average
• 99% Block Proposal Success rate over the last 30 days, with over 1,000 proposed blocks
• 82 active clusters and 323 distinct Node Operators consisting of 180+ home stakers, in addition to professional operators

Proposal

Based on the strong performance of DVT - it is clear that there is an opportunity to drive higher performance for Lido based validators with the utilization of Distributed Validator Technology via the Curated Set, while continuing to provide strong rewards rates.

As such, it is proposed that as an initial step (and until module developments such as SSVLM occur) for those Node Operators in the Curated Module willing to adopt Distributed Validator Technology, they may do so in an intra-operator format (e.g. as the sole operator in the cluster) configuring their infrastructure as they see fit, while following the established SNOPS in place.

Node Operators must adhere to the following requirements and operational considerations: a. As consolidations are currently not yet supported by the Lido protocol (though will be in the future), it is proposed that Node Operators may utilize intra-operator DVT for:

• depositable validators in the queue that have utilized a Distributed Key Generation ceremony, and
• up to the lesser of up to 1,000 active validator keys or 20% of active Lido validators via a key splitting ceremony, following SSV and Obol’s respectively audited processes.

b. Node Operators in the Curated Set may add any number of additional DVT-based keys to their depositable keys in the Curated Module, provided that these keys are generated via a verified Distributed Key Generation (DKG) process, and the process for which key shards are created, stored, and used has been vetted by NOM workstream contributors. c. Node Operators planning to utilize a key split must communicate with Lido Contributors and test the process via the Lido Hoodi testnet with sufficient time to monitor performance. d. Node Operators should note, that if they decide to stop running keys that have undergone a splitting ceremony via either of the DVT providers, they must either exit the validator keys or utilize consolidations (once supported in the protocol). e. Node Operators should not re-use the previously utilized full private key after a key splitting ceremony. Node Operators may also, if interested, coordinate cycling of existing validators to DVT setups with Lido contributors (however, they would not be guaranteed to receive ETH that flows out and back into the protocol, as the ETH would follow the normal deposit and withdrawal mechanisms of the protocol). Node Operators planning to utilize DVT are encouraged to use the opportunity to increase the resilience of their infrastructure by adopting new EL & CL client pairs, which would also benefit the decentralization of the network.

Incentive Reward Share

Given the ongoing incentives programs from Obol and SSV, there is an opportunity to drive growth to the protocol via the Mellow Decentralized Validator Vault (DVV), in a similar configuration to how incentives are treated for the Community Staking and Simple DVT Modules.

Today, 90% of DVT incentives from the Simple DVT Module and 80% of incentives from the Community Staking Module are directed to the DVV for all active and performant DVT validators. Similar to CSM, Curated Module (CM) Node Operators would be responsible for paying the Obol or SSV Network fees. As such, it is proposed that Node Operators would receive a 20% share of DVT provider incentives pertaining to validators run via the Curated Module, with the remaining 80% directed to the Decentralized Validator Vault.

The introduction of incentives in the Curated Module has prompted a broader reconsideration of whether the same 20% share in the Community Staking Module adequately reflects the diverse nature of operators across the two modules. With the introduction of  Community Stakers Identification Framework in CSMv2, it is proposed that the DVT incentive share for Identified Community Stakers (ICS) be increased from 20% to 25%, incentivizing home stakers to utilize DVT while providing an additional benefit of utilizing the Identification Framework for community stakers.

The Decentralized Validator Vault incentivizes the decentralization of the Lido protocol with deposits flowing to Lido Core modules that support DVT (Simple DVT, CSM, and with this proposal, the Curated Module). In addition, because of the deposit flow, these newly created validators have a higher chance of being DVT-based, in which case they may also benefit the decentralization and resilience of validators utilizing Lido protocol.

Below is a breakdown of how the Mellow DV Vault incentives are allocated:

Risk Mitigation

While DVT has now shown to be appropriately battle-tested on mainnet given its extensive use, there are slight incremental risks relating to the key splitting process. However, this process has been used widely on mainnet by large staking protocols and node operators, with the vast majority of SSV’s 125,000+ and an increasing number of Obol’s 16,000+ mainnet validators utilizing this process.

As such, this proposal calls for no more than the lesser of 1,000 keys or 20% of active validators from a given Node Operator via the Lido protocol to undergo a key splitting process.

Currently, the Lido DAO discretionary fund contract holds over 6,500 stETH. In the event of a slashing incident for a single Node Operator as a result of key splitting, research from the Lido Analytics workstream indicates that it is estimated that 279 ETH would be at risk.

While it is extremely unlikely that multiple Node Operators would face a simultaneous slashing incident due to key splitting given their diverse key management practices, even in that scenario up to 7,500 validators could be slashed before exceeding the balance of the discretionary fund.

Next Steps

If this Snapshot vote is supported by the DAO, an on-chain vote via Aragon is not required. Node Operators will be free to opt-in to utilizing intra-operator DVT via the Lido protocol on mainnet, after following a testnet process via the Lido Hoodi instance. Information detailing which Node Operators opt-in to the utilization of DVT via the Curated Module will be reflected on the Lido Research forum and quarterly VaNOM reporting, and over time may also be visible via tooling such as operators.lido.fi.